China’s top chipmaker prioritises local sales amid sanctions • The Register

Despite record breaking growth and a shift towards supplying chips domestically, execs at China’s top chipmaker – Semiconductor Manufacturing International Corporation (SMIC) – believe its production capacity can meet less than ten per cent of domestic semiconductor demand in the Middle Kingdom.

The company last Friday announced its Q4 and full year results, with quarterly revenue topping $1.58 billion – an increase of 61.1 per cent year-on-year. Annual revenue was $5.4 billion – an annual increase of 39 per cent. Gross margin hit 35 per cent, which was up 18 points year-on-year. These numbers led a SMIC exec to call the company “the fastest-growing company among the top four pure-play foundries in the world” during its February 11 investors call.

That growth came primarily thanks to the domestic market. Revenue within the Middle Kingdom grew from 56 per cent of the overall amount to 68.3 per cent. North American business slipped from 27.7 of the firm’s total to 19.6 per cent since the prior year.

“The global shortage of chips and the strong demand for local and indigenous manufacturing brought the company a rare opportunity, while the restrictions of the entity list set many obstacles to the company’s development,” said an SMIC exec on the Q42021 earnings call.

Co-CEO Zhao Haijun said the company’s customers “are closely supplying to electronics makers and system companies, and they want to have this regional supply chain, and they need production capacity in China.” Haijun then detailed that production capacity is still far from meeting even a tenth of the domestic demand.

The company predicts [PDF] positive growth to continue and forecast revenue growth to perform better than last year’s industry average. Those numbers translate to a 15 to 17 per cent Q1 revenue quarterly increase while maintaining between 36 to 38 per cent gross margin.

Research firms like Forrester have warned that growth of China’s tech market is slowing.

SMIC also acknowledged an impending change. “While industry is still in a state of demand outstripping capacity overall, demand has been slowing down in certain application areas, and there is a gradual shift from capacity shortage across the board to a phase of structural shortage,” an un-named exec told investors.

The exec also referred to 2022 as a “high-investment year” as SMIC expands existing fabs and builds new ones. Specifically, the company is building chip manufacturing sites in Shanghai, Beijing and Shenzhen, which are projected to triple its chip making capacity. The Beijing and Shenzhen faciities are expected to be ready by the end of 2022 while construction in Shanghai will commence this year.

However, the chipmaker did warn that SMIC could “experience some delay in expansion capacity,” partly related to supply chain problems for the chipmaking equipment itself – a factor that may be related to that spot on the entity list. ®